Seeking Alpha
Independent research, long/short equity, dividend investing, ETF investing
Profile| Send Message|
( followers)  

In February I announced a new “Dual ETF Momentum” spreadsheet. The idea was inspired by a paper written by Gary Antonacci and available on Optimal Momentum.

The spreadsheet is available on Scott’s Investment’s here. The objective of the spreadsheet is to track four pairs of ETFs and provide an “Invested” signal for the ETF in each pair with the highest relative momentum.

Relative momentum is gauged by the 12-month total returns of each ETF. The 12-month total returns of each ETF is also compared to a short-term Treasury ETF (a “cash” filter) in the form of iShares Barclays 1-3 Treasury Bond ETF (NYSEARCA:SHY). In order to have an “Invested” signal the ETF with the highest relative strength must also have 12-month total returns greater than the 12-month total returns of SHY. This is the absolute momentum filter, which is detailed in depth by Antonacci, and has historically helped increase risk-adjusted returns.

I have added an “average” return signal for each ETF on the spreadsheet. The concept is the same as the 12-month relative momentum. However, the “average” return signal uses the average of the past 3, 6, and 12 (“3/6/12″) month total returns for each ETF. The “invested” signal is based on the ETF with the highest relative momentum for the past 3, 6 and 12 months. The ETF with the highest average relative strength must also have an average 3/6/12 total returns greater than the 3/6/12 total returns of the cash ETF.

Using Portfolio123 I backtested a similar strategy using the same portfolios and combined momentum score used above. You can view the backtest results in last month’s update.

Below are the four portfolios along with current signals.

Return data courtesy of Finviz
Equity Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
US Equities VTI 16.62 Invested Invested
International Equities VEU 7.09
Cash SHY 0.02
Credit Risk Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
High Yield Bond HYG 2.86 Invested Invested
Interm Credit Bond CIU -1
Cash SHY 0.02
Real-Estate Risk Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
Equity REIT VNQ 6.19 Invested Invested
Mortgage REIT REM -8.35
Cash SHY 0.02
Economic Stress Represent-ative ETF Average of Quarterly/Half/Full Year % Returns Signal based on 1 year returns Signal based on average returns
Gold GLD -19.9
Long-term Treasuries TLT -10.6
Cash SHY 0.02 Invested Invested

Equity REITs are trumping Mortgage REITs by a wide margin, as is US equities versus international equities. High Yield bonds have a slight advantage over cash and “Economic Stress,” in the form of GLD and TLT, is lagging cash by a significant margin.

As an added bonus, the spreadsheet also has four additional sheets using a dual momentum strategy with broker specific commission-free ETFs for TD Ameritrade, Charles Schwab, Fidelity and Vanguard. It is important to note that each broker may have additional trade restrictions and the terms of their commission-free ETFs could change in the future.

Source: Dual ETF Momentum Portfolio - July Update